Natixis marks down assets to stem crisis at its H2O funds business

Bloomberg

Natixis SA went into crisis-fighting mode to stem a wave of outflows from its H2O Asset Management unit, selling part of its non-rated private bonds and marking down the balance in order to remove incentives for investors to pull even more.
The move cuts the aggregate market value of the bonds, which were issued by companies linked to financier Lars Windhorst, to less than 2 percent of assets under management. H2O’s funds will be priced at a discount between 3 percent and 7 percent, and the company will remove all entry fees across its funds, H2O said in a statement on Monday.
The measures aim to reverse outflows from a group of H2O funds that saw their assets drop by 1.1 billion euros ($1.3 billion) amid concern that they held illiquid debt securities tied to Windhorst. By moving swiftly and having fund investors take valuation losses now, H2O is seeking to avoid the fate of famed UK stock picker Neil Woodford and Swiss asset manager GAM Holding AG who both froze funds over the past year.
Morningstar raised concerns about the “liquidity and appropriateness” of some corporate-bond holdings as well as potential conflicts of interest. The rating company suspended its recommendation, following a report in the FT about the fund’s holdings of rarely traded bonds. Natixis, which has a network of more than 20 auton-omous asset managers, brought forward a periodic audit of the unit to start June 21.
Natixis shares rose 0.8 percent in Paris, halting the two-day slump that followed Morningstar’s move.
The bank lost almost 12 percent in Paris trading last week, slumping to the lowest level in nearly three years.
The reduction of Windhorst-linked bonds on Monday comes in stark contrast to the defiant tone struck by Bruno Crastes, chief executive officer of H2O, in an interview published on French media website H24 Finance last week.
“The liquidity of the securities is ensured and will allow it
to face potential additional
withdrawals,” Natixis said in statement on Monday.
“The long-term performance drivers of H2O funds, which have been proven over numerous years to the benefit of our clients, remain unaffected as they are not related to this type of investment.”
“Outflows of more than $680 million so far this quarter were confirmed by Natixis on a call, but this figure will increase hugely by the quarter’s end, we believe,” said Jonathan Tyce, Georgi Gunche, industry analysts.